New analysis of anonymised accounting data from nearly 150,000 small and medium-sized enterprises, published on 15 June 2026, shows UK SME profits grew by 7.4 percent in the year to the first quarter of 2026. That marks an acceleration from 5.5 percent in the previous quarter, and it is the strongest profit growth since the opening quarter of 2022.
Stronger profits, steady revenues
The uplift in profitability accompanies a sustained, if modest, rise in real revenues. Firms reported a 3.2 percent increase in real revenues year on year, the fourth consecutive quarter in which top-line sales have expanded. The wider economy also showed momentum, with gross domestic product growing by 0.6 percent quarter on quarter in Q1, official figures indicate.
Despite these gains, business leaders caution that headline improvements mask persistent fragilities. Higher profits for some firms reflect tighter cost control and selective price increases rather than broad-based demand strength. Smaller outfits in particular continue to navigate mixed orders and elevated input costs, meaning the recovery remains uneven.
Late payments: a drag on growth
Cashflow remains a central concern. Nearly half of all SME invoices, 49 percent, are overdue. Businesses report waiting an average of 27 days to receive payment after issuing an invoice. At the same time, SMEs are taking longer to settle their own supplier bills, averaging 37.1 days, up from 31.9 days in Q1 2025. Late payments are estimated to cost the UK economy about £11 billion every year.
Emma Jones, the Small Business Commissioner, said the persistence of overdue invoices underlines why reform is needed. “These figures show the human reality behind the statistics: suppliers who cannot plan, firms that delay hiring or investment, and the cashflow squeezes that can push viable businesses to the brink,” she said. “Measures in Parliament are a necessary step, but enforcement and cultural change are equally important.”
Policy responses and e-invoicing
Parliament is currently progressing the Small Business Protections (Late Payments) Bill, designed to strengthen remedies for suppliers and deter serial late payers. Meanwhile, the government has announced a roll-out of mandatory e-invoicing from 2029, a digital change seen by many as a practical lever to speed up payments. Data suggests e-invoices are typically paid five to seven days sooner than paper or manually processed invoices.
Industry figures welcomed the policy direction, but stressed implementation will be critical. Automation and adoption costs could pose barriers, especially for the smallest firms, unless support and clear standards are in place. Faster payments would ease working capital pressures, but only if coupled with robust dispute resolution and timely enforcement against late payers.
Regional disparity
The report shows sharp regional differences in profitability. The East Midlands leads with a profitability rate of 20.2 percent, followed by the West Midlands at 16.3 percent. London, while still outperforming some regions, recorded profitability of 10.6 percent. On two-year revenue growth, Derby stands out with a remarkable 43.6 percent increase, making it the top local authority area for growth over the period.
Liam Daly, senior economist at Cebr, said the geographic pattern reflects sectoral mixes and local economic conditions. “Regions with stronger manufacturing and export exposure have seen margins recover more quickly, while those reliant on hospitality and consumer services have faced a slower rebound,” he said. “Derby’s performance is likely linked to pockets of investment and a rebound in advanced manufacturing demand.”
What firms say
Business owners report a familiar mix of optimism and caution. Some manufacturers and business-to-business services have benefited from steadier orders and improved procurement, translating into higher margins. Retail and hospitality firms, by contrast, continue to face volatile demand and tight labour markets, which limit how quickly gains in revenue feed through to profit.
Derk Bleeker, Chief Commercial Officer at Sage, said the data points to a cautious, pragmatic recovery across the SME sector. “Rising profits and sustained revenue growth are encouraging signs, but the prevalence of overdue invoices shows many firms are operating on a knife-edge,” he said. “Digital tools and better payment practices can help, but they need to be matched by wider business support and policy certainty.”
Outlook and risks
Economists caution that the gains are not guaranteed to continue. External risks include slower global growth, renewed inflationary pressures, and shifts in consumer spending that could hit firms reliant on discretionary outlays. Domestically, policy uncertainty and the pace at which late payment reforms are implemented will determine whether SMEs can convert improved trading into durable financial resilience.
For now, the headline numbers give cause for cautious optimism. Profit growth is at its strongest in years and revenues have expanded for several quarters. Yet until payments practices improve and smaller firms build buffers against shocks, many businesses will remain vulnerable to the next downturn in demand or rise in costs.
Policymakers, lenders and buyers will all have a role to play if the recent upswing is to be transformed into a broader and more durable recovery for the UK’s small business community.
